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Category: Stock Charts (page 1 of 2)

Buy and Hold Stocks for the Long-Term

It’s every investor’s favorite dream – buying into stocks and then relaxing as the stocks do what needs to be done without your losing precious sleep. Such stocks are fondly referred to as forever stocks, rightly conveying that you marry them, and the mutual love affair lasts your lifetime.

What makes these stocks tick is that their growth will be consistent throughout the year, year after year, and they will boost earnings without posing risks normally associated with lesser stocks. Far from being a daydream, such stocks do exist and they make you a decent pile of money.

Investors would do well to recollect the famous Oppenheimer survey that discovered that the S&P 500 had an unbroken run of success for two decades. This is not to imply that such stocks do not ever see declines, they do and when that happens you might just be tempted to let go of them to cover losses, but retaining these stocks would be the greater challenge presuming that your interests are spread out over the long term.

Banking Saving

The beauty of forever stocks is that they are tough and resilient and do a pretty good job of holding up even when the market is experiencing peak volatility.

Research the market (and the companies obviously) and carefully select the ten safest stocks that you would expect to record consistent growth through a decade or more of your life, and compare their past performance with the S&P 500. If your choice is correct you may notice that the listed stocks may have dropped appreciably lower than the S&P 500. That’s the sheer power of forever stocks.

The point is that the growth recorded by theses select stocks more than makes up for the losses that the market would otherwise force you to meekly accept. Just to cite one example, MasterCard experienced a spike in earnings in August this year that had share prices shooting by 13 percent, and that must have been cool comfort for happy investors when the Dow Jones Industrial Average crashed 500 points the following day.

If you thought that these spikes are dramatic you may have missed the growth spread over a longer period which is even more impressive registering 25-30 percent compared to nearly 10 percent of the S&P.

The forever stocks may sometimes flatter to deceive and seemingly reputed and hitherto financially sound companies have been known to bite the dust – Enron, WorldCom, General Motors – to name a few. In these instances forever got replaced by free-fall.

If you are wading in unfamiliar territory in identifying forever stocks, here’s the low down on zeroing in on them:

Such companies will be having a rock solid advantage over the competition in their sector or may even be a monopoly.

These companies will reward their investors with extremely generous dividends.

You will find these companies buying massive shares of their own, kind of like reinvesting in themselves.

Once you have such a company in your sight, you can rest assured that you will be well on course to making some serious money in the long term; your immediate priority would be to buy into these shares and to put them away for a couple of decades. Financially, your decision would be oozing with common sense because being strong companies you can expect them to take adequate care of your interests, and of course success breeds success over a longer time span.

To cite a valid example, there’s Philip Morris, the tobacco major with serious investments in at least fifteen global brands spread out over 180 nations. It might be awe-inspiring globally, but you won’t find a more shareholder centric company that has presided over dividend distribution exceeding 39 percent at the conclusion of 2014, and the company also repurchased shares exceeding 16 percent of its mammoth shareholding, thereby contributing to a quantum jump in 20 percent in its earnings per share.

As the wise investor may surmise, buying into this company assures a lock in of at least 4 percent, with further increases expected in the pipeline. As the company repurchases its shares more aggressively in the coming decade you can expect a healthy return on your investment. The product is also one which is high in demand which can be expected to increase its market penetration substantially in coming years. So the investor can visualize the kind of robustness and stability that ensures a good night’s sleep. This is not to imply that all forever stocks behave similarly, but the downturns will be rare and sporadic, not the norm.

The last word

If you invest in financially robust and strong companies you may have found the key to maintaining the stability of your amply diversified investment portfolio. These are companies that withstand global fluctuations easily and preserve their financial strengthen, and will even improve on their financial foundations as the years and decades roll by. In a vastly volatile stock market it would be a wise decision to track down and invest in companies that will not panic at the first sign of trouble. Our job is to create awareness in investors on what constitutes safe investment and identifying the investment that assures steady growth whatever the market risk, and forever stocks inspiringly lead the pack.

How to Use Limit Orders

When was the last time you went shopping and slapped the product on the counter and said, “charge me whatever!”  You’ve never done that and neither have I.  I don’t envision either of the two of us doing that any time in the foreseeable future either.  When buying a stock you must set your stock limit price via a limit order or you could be paying “whatever.”

The diligent way to purchase a stock is by using a limit order.  A limit order is exactly what it sounds like; you set the limit of what you’re willing to pay for a stock.  If you do not use limit orders you risk paying any price for a stock.  As an investor you want to get the best bargain for the company you’re investing in so you have to set a limit to sway the odds in your favor.  I know you would barter with a real estate agent to get the best possible price for a house so negotiating with the stock market should be done too.  Believe it or not, timing is everything in investing and using limit orders enables you to embrace this.

How do you place limit orders?  When you are placing a stock order with your brokerage firm via telephone just simply tell your broker the limit you are willing to pay for a stock.  If you are wanting to buy 100 shares of Disney then you’d say, “I want to buy to open 100 shares of Disney at a limit of $100.”  You are opening a position to go long a stock so that is why you say, “buy to open.”  When closing a position you are “selling to close” your position.

stock brokers

When placing a limit order online, just click limit and set your price.

In this order entry you would be buying 100 shares of Disney, stock ticker DIS, at a limit of $60.00.  You are telling Mr. Market that $60.00 is the most you are willing to pay per share.  If the stock price is $60.00 or lower than your brokerage firm will buy the stock for you.

You can take your limit order one step further and even limit your time frame.  The only time frames you really need to know are Day, GTC and GTD.  Day is self-explanatory: you are sending your order in and if your limit is hit by the end of the day then your order will be placed.  GTC stands for “good till cancelled” and the order will stand until you cancel it.  GTD is an acronym for good till day.  After selecting this you will select a day when your order will be cancelled.

If you do not use limit orders then you would be placing a market order.  With a market order you are telling your brokerage firm that you don’t care what price you pay for the stock.  Disney could be priced at $60.00 or $67.00 and your brokerage would still buy the stock for you if a market order was placed.  This is not the approach you want to take when investing or buying merchandise online. You always want to get the best deal for anything you buy, especially stocks, so always set your limits.

It is crucial that you use limit orders when placing stock orders.  This will guarantee you get the price you desire for an equity that you want to invest in.  This will further increase your return on investment and help you conquer investing.

How Can You Get Rich Buying Stocks

Many beginning investors are wondering the same question: how can you get rich buying stocks?  Well, how does a person get rich with anything?  They develop a game plan, meditate on it and then take action.  Stocks work the same the same way, although you do need to think about whether you want to make money for the short term or the long term.

Developing a Gameplan – Your First Step to Getting Rich with Stocks

If you want to get rich with stocks, you need to think about how much money you plan on investing in mutual funds.  Afterward, you need to think how much liquid cash you want on hand for stock investments.

This is a very important step, as most investors spend up all of their money when the market is good.  However, even when the market is bad there are winning stocks… sometimes even more so.  But if all of your funds are already gone, you cannot take advantage of these gold mines.

Identify a target to sell while also defining your stop loss

If you want to limit your losses, make sure you define your stop loss.  This is an arrangement where stocks are sold after hitting a certain price.


Buying Stocks for Long Term Investing

Some stocks will be profitable over the long haul.  These are the ones you want to keep in your portfolio for maybe five or ten years.  At the end of that period, you will make tens of thousands.

In addition, include a few high-risk stocks.  These are the ones that are not doing so well today, but may turn out to be profitable in the future.

Getting Rich with Mutual Funds

When it comes to mutual funds, you will want to stick with systematic investment plans.  By doing so, you can benefit from the power of leverage.   But this is assuming you back up your plan with a withdrawal strategy… selling your mutual funds after you have reached a certain amount.  You can then use the proceeds of your sale for stocks or another type of mutual fund… ones that are fixed income.

Gold Investing

Gold has always been a valuable commodity.   And even now it can make you a millionaire if you play the game right.  To do so, you must realize that gold and stocks run opposite from each other.  Therefore, you should invest in gold mining stocks.  Gold ETF is an example.  It is a gold-based mutual fund specifically designed for the commodities investor.

Consider Being Contrarian

A good investor does not always go with the flow.  Warren Buffet is an example.  Unlike many investors in the 90s, he did not put his money on Internet-bases stocks.  As a result he did not lose like so many others during the dot com crash.

Two additional concepts every investor should know:

Power of Compounding

Compounding occurs when you reinvest the interest you gain from your previous investments.  For instance, if you invest one thousand dollars, and you receive ten percent interest on the principal, you will get one hundred bucks interest in a year.  If that interest gets reinvested, the next year you would end up with $1,110, allowing you to earn $10 more in interest.   If you can stick to this plan, you would double your funds every 8 years.

Even Albert Einstein commented on the power of compounding.  He felt it was mankind’s greatest idea, as it allows him to accumulate wealth in a systematic way.   Indeed, if Einstein thought compounding was a decent strategy, there must be something to its magic.

The concept becomes even more effective when you remain disciplined.

In any case, to get started with compounding, set up a series of accounts where fixed amounts get deducted from your account.


Dollar Cost Averaging

When you use a fixed amount to pay for an investment, you are engaging on a unique type of averaging.  In the investment world, it is known as “dollar-cost.”   People that engage in this strategy spend more when stocks are down and less when they are not doing well.  For example, say a person invests $500 each month for $50 stocks.  During their first purchase, they buy ten shares.  If the stock rises to $62.50 next month, you would only purchase 8 shares.  But if the stock falls to $41.67, you would get twelve shares, (minus the transaction fee).

Setting up regular investing mechanisms is relatively easy.  It does not matter if you are investing in stocks or mutual funds, as the dollar-cost strategy works the same.  If you use the strategy for stocks, you can apply it to individual shares or more unique arrangements.  The exchange-traded fund is an example.

So, how can you get rich buying stocks? Use your head and develop a strategy that meets your financial goals.   Most importantly, never invest more than what you can afford.  While stocks can be very lucrative, they are still a gamble.   Do not take this gamble if you cannot afford to lose what you put in.  In other words, view your stock investment funds as “fun money.”  If you have no problems spending your funds at a restaurant or even on a vacation, then that amount should work well with your budget, (as you are not expecting a return).  By using this approach, you will not be disappointed when or if the market fails.  And when it is successful, you will feel even more proud of yourself, as no other “fun” purchase can generate extra income.

Bar Charts

Bar charts are a bit of a technical subject. Although this does come under the heading of technical analysis (no pun intended), we’ll try to keep it simple. If you learn how to use it well, you’ll be that much more at cause over emotional news, analyst recommendations, etc.
When we say bar charts, we mean the “price and volume” of a stock’s chart. A stock’s price displayed on a chart with the volume for that day, week, etc. Like this:

The vertical bars represent the high and low of the price for that day, week, etc. The horizontal slash represents where the price ended at for the day, week. Etc. But you already knew that, right?
The volume bars at the bottom of the picture represent the total amount of shares traded for that day, week, etc.
Both the price and volume have moving averages that look like this:

These lines give you an idea of what the average price (or volume) of a stock is relative to the last 10 days, 50 days, 200 days (or weeks), etc.
Here are the basics of how to interpret these two pieces of data on bar charts; both volume and price:
When price goes up and volume goes up, it indicates strong buying demand.


Volume is a footprint left behind by the institutional investor. After all, it takes millions of dollars to move tens of thousands of shares to increase the volume and price of a stock.
Notice how the volume of the huge up day in this graph looks like it’s more than double the average volume. That’s institutional buying power at work!
When price goes up and volume is average or below average, it points to mild, tepid buying.

There is some buying taking place, but the institutional investors aren’t rushing in to buy the stock. If they were, they would leave their volume footprints.
Likewise, when price does down and volume is average or below average, it indicates mild, tepid selling:

On the other hand, when you see the price go down with heavy volume, watch out!

The institutional investors are hitting the exits, and hitting them fast.
As discussed in Stock Breakouts, volume also plays a key role in breakouts. When a stock’s price is breaking into new high grounds coming out of a sound area of price consolidation, you want to see massive volume. The bigger, the better.
Come on, you know this one. Right! The institutional investors!
When you see daily or weekly volume 354% above-average on a bar chart, someone managing lots of money is very interested in that stock.
In addition to these tidbits, look to see “tight” price areas. Like this:

When we say tight price areas, we mean small price variations from high to low on a daily or weekly bar chart. The price bars look shorter than the usual daily or weekly bar. This tightness points to quiet accumulation by institutional investors. Wide and loose price areas point to erratic buying and selling, and isn’t the best indicator in the world. Like this:

*Digression Alert*
Have you ever played a game of Spoons? It’s a card game where you sit around a table passing cards to the next person, in a circle. There’s a set of spoons in the middle of the table. There is one less spoons than there are players, so that one player will be left spoon-less at the end of the game.
As soon as someone gets four of a kind, he or she grabs a spoon. Once he/she snags that spoon, all hell breaks loose as the other players scramble and scratch their way to spoon-ownership.

We’re going off on this “Spoons” tangent (aside from the fact that we’re avid Spoons players) because it can be compared to tight and loose price areas on bar charts.
A tight price area is like the calm and collected Spoons strategy. Once you have four of a kind, you silently take one of the spoons while no one notices. That’s what the institutional investors are doing. Silently collecting up shares when no one notices.
A wide, loose price area on a bar chart is like the feverish scramble of all of the players after you slam your first on the pile of Spoons and yell at the top of your lungs “I’VE GOT A SPOON!” When the whole market is aware of the stock, emotional buying and selling enters in, which forms wide and loose patterns.
So there you go- you now know more about price and volume action- AND Spoons!
As mentioned in Stock Bases, you want to see a dry-up in volume in the lows of a base. This means that most, or all of the selling has taken place and is now exhausted.

As you can see in this picture, most of the volume in the tight price area is below average. When the stock breaks out the area of price consolidation, the volume kicks in.
Monitoring price and volume action is a good hedge against emotional news and market analysts. It gives you a factual picture of what is happening with the stock. Use it to your advantage! Your portfolio will thank you.
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Return to Technical Analysis from Bar Charts

Long Term Investing

The Easy Way to Invest

Long term investing is really the best and easiest way to invest. You just keep putting money into the market as you get it, and over time you discover that it has turned into a rather decent amount. You can buy a good no-load mutual fund or try your skill at selecting individual companies to invest in. And then you just wait, counting on the fact that the long term trend of U.S. stock market has been up from the beginning.

The History of Long Term Investing

The New York Stock Exchange was founded on March 8, 1817, so it is close to 200 years old, and shares have been going up ever since. There is a reason for this, which is that shares appreciate when companies are productive and make money, and generally that is what happens. Generally. On average.

Of course, stock prices didn’t go up in a straight line. There was the Panic of 1819, the Panic of 1837, the Panic of 1857, the Panic of 1873, the Panic of 1893 and so on right through the Great Depression and up to the Great Recession of 2008.


The Problems With Long Term Investing

You see, there are two problems with long term investing.

First, it’s long term. That would be all right but, as a rule, people don’t have all that much time to invest. As Keynes famously said, “In the long run we are all dead.”

Second, it isn’t straight up. So even if you have a fairly lengthy horizon – 10 or 30 years, maybe to retirement – you might buy in at the top and wait for many years just to get even.

What an investor needs is some way to know, “This is a pretty good time to get in” and also, “This is a pretty good time to get out.” Doing that is called “market timing,” and Bumblebee Investing is dedicated to coming up with those market times.

Trading the Market Indices

Let’s look at how Bumblebee tries to do that.

The way I use the term, “investing” (as opposed to “trading”) means putting up money or other assets with the idea that it will be used to create a product that can be sold and generate a return to you, the investor, as a reward for putting the money up in the first place. Why you deserve a reward is that you took the chance – risk – that you would lose some or all of the money you invested.

The reward you get is money. The money you get is in the form of dividends and of the increased value of your shares if and when you decide to sell them. Where do dividends come from? From profits. What makes your shares more valuable in the future? The profits that are not distributed as dividends but are reinvested – profitably – by the firm.

Stock analysts try to determine what a company’s shares are worth so as to know whether the price they are currently trading at is a “good buy” or otherwise. Though the analysis can be very complicated, what the analysts are always trying to figure out is simply how profitable is company XYZ now and in the future. If you know what a company is earning now and what it would earn at any time in the future, there is nothing else necessary so far as investing is concerned.

At Bumblebee Investing I am not particularly interested in the present and future profits of individual companies. That is really hard to figure out for any one company, let alone hundreds and thousands of them, and there are people who are much better at it than I am. Fortunately, it is possible to invest without analyzing any one company. Instead, we can invest in all of them at the same time.

The way you do that is by buying shares of a mutual fund that follows the market up an down, or by investing in an index Exchange Traded Fund (ETF) for the S&P 500 Index, the Dow Jones Industrial Average, or the Nasdaq Composite Index, or by trading the corresponding index futures.

Market Timing

And it turns out that investing this way makes market timing much easier.

What happens with a major stock index is that the uncertainties associated with individual tend to cancel out, leaving you with a representation of the direction of the overall market. And while it is quite difficult to correctly evaluate individual companies, the direction of the whole market can be predicted with some accuracy.

This is because individual companies operate inside of the general economy. If the economy is good, companies (as a whole) make profits. If the economy is bad, companies make much less profit or even go out of business. Therefore, the stock indices will follow the economy.

It is often noted that the stock market commonly signals recessions by turning down. This is because the market is sensitive to the state of the economy. But the market, because of the various psychological factors of traders, lags behind the economy a little. It is always waiting for confirmation.

Many years of very short term trading have convinced me that profits are made by not waiting for confirmations. So while the market waits for confirmation in the economy, the Bumblebee Investor gets out near the top and in near the bottom on the basis of early signs. If the call is wrong, well, you just reverse your position with a small loss — sometimes that happens, but it’s just part of the game. The small losses are offset by the much bigger profits when you are right.

The Smart Investors 3 Step Guide

As investors, we all want to beat the market, but most people have a hard time doing it, let alone doing it consistently. In this 3-Step guide, we explore some simple techniques that will give your portfolio the edge in 2012. Following these 3 simple rules, we will take control of your portfolio and position it to beat the market.

So what do smart investors do differently than the rest?

Investors who consistently outperform the market are actively engaged in the management of their portfolios. It is not enough to build a portfolio and walk away from it; rather, it requires constant review and fine tuning. The reason lies in the flow of new information.

The Basics

First, let’s understand some basics about the flow of information. The market is a pricing tool, which takes into account all available information every second of every business day. As new information is received, the market digests the information and makes a decision as to how much each company is worth, given the newfound knowledge. As the market goes through cycles, each time reassessing what companies are worth, prices adjust to the appropriate level. This constant fine-tuning by the market allows it to allocate more capital to the companies that will give investors the highest returns, and less to those companies that are expected to underperform. These instantaneous cycles that shift funds between companies, make the market both diversified and efficient, and enables it to get a healthy return.

Smart Investor

How can you beat that?

Sure, the market sounds intimidating – and it is – but there is one fact that gives investors a fighting chance. The market holds all invested money, which is more money than could possibly be allocated to just those companies that are doing well. Some of the money will inevitably remain with the companies which will underperform, and because of this, the gains will be offset by losses either partially or completely. If this wasn’t the case, it would be next to impossible to beat the market.

Investors who consistently outperform the market recognize the relationship between the flow of information and price, and constantly review their portfolios to make sure they are allocating capital to the stocks with the highest potential return on investment. Further, they are able to concentrate their investments into the securities that will outperform the market, whereas the market must allocate capital to all companies – the good ones and the bad ones.

To beat the market, investors need to be able to identify those stocks that will provide the best returns. However, any analysis is bound to be wrong for the simple fact that it is an estimate of things to come, and most of us are not in the business of predicting the future. Using this analysis, the investor will make a decision as to whether to invest in a company, and if so, how much. When an analysis is wrong, it may often be the difference between outperforming the market and falling short.

To beat the market, it is not enough for us to analyze companies. Incorporate these three simple rules into your investment strategy to give your portfolio an edge.

The Steps

Keeping a comfortable Margin of Safety is crucial to wise investing.

The First rule is to maintain a Margin of Safety. The concept is simple with an example: If the analysis estimates XYZ stock is worth $10 and you decide to maintain a 10% Margin of Safety, then you should invest in the XYZ stock at a price no higher than 90% (100% – Margin of Safety) of the price determined in the analysis. In the example I gave, this means 90% of $10, or $9. By applying a Margin of Safety to our analysis, we are allowing for error in the analysis. If an analysis has more uncertainty, a higher Margin of Safety should be used.

The Second rule is to Dollar Cost Average. This sounds complicated, but is not. In fact, if you have a 401k or an IRA, you are probably already applying the technique and didn’t know it. Dollar Cost Averaging is a concept based on a simple fact that successfully timing the market is almost impossible to do. One study showed that in order to produce successful returns, an investor would have to time the market right approximately 80% of the time. Dollar Cost Averaging allows us to invest our money at a fair price by contributing a fixed amount of money over time instead of trying to time the market. Learn more about Dollar Cost Averaging here.

The Third and final rule is to keep those commission costs low. The more times you make trades, the more fees you have to pay. For example, to invest $100, you may be required to pay a $7 commission on the trade. This fee is what a company will charge you to cover their costs and to execute the trade. For an investor to recover this cost, the stock would have to gain over 7%, and that’s just to break even. To breakeven and beat the market, this position might have to earn 15% or more! So, how can we lower our commissions? It’s simple, invest larger amounts, and invest less frequently. If you are scratching your head right now, don’t worry.  If you think that this rule is somewhat contradicting to our Dollar Cost Averaging rule above, you are correct. What we can take away from this observation is that it is important to strike a balance between the two rules where you are comfortable.

Investors who consistently outperform the market are not doing anything secret, they are simply investing their money in smart ways – they are “Intelligent Investors.” By applying these three simple rules to your investment strategy, you should be able to give your portfolio an edge.

To Drip or Not To Drip

Earlier this week I was speaking to one of the guys at work about true DRIPs and how they can be a great way to build a position in a company, especially when you are just starting out and when your portfolio is on the smaller side. I wrote about DRIPs and SPPs in an earlier post, but my co-worker had some additional questions about synthetic DRIPs and when (or if) to use any DRIPs at all.

True DRIPs (also called real, classic or authentic DRIPs) are dividend reinvestment plans provided by a company to current shareholders as a way to directly buy additional shares. These DRIPs are handled through a transfer agent such as Computershare or Canada Stock Transfer, with no need to deal with a brokerage. Rather than pay out the dividends in cash in the form of a cheque sent to your house or deposited into your bank account, the company provides additional shares (which includes whole and fractions of shares) which they add directly to your account. For example, if your quarterly dividend is $100 and the current share price is $40, you would receive 2.5 shares. On the next dividend payout even the fractions of shares generate more dividends, thus compounding the growth. Many companies offer a discount off the current market price when purchases are made through a true DRIP, which helps your position grow even faster.

Not To Drip

Synthetic DRIPs work much the same way, with a few notable exceptions: they are sponsored by the individual brokerage you deal with and they can only provide whole shares. In this case any cash remaining from a dividend after purchasing whole shares will be returned to your account to do with as you please. Using the same example from above, if your quarterly dividend was $100 and the current share price was $40, you would receive 2 shares (totaling $80) and the remaining $20 would be placed in your account. Though your total number of shares will grow a little slower with a synthetic DRIP, it does have some advantages that true DRIPs do not. Because synthetic DRIPs are held with a brokerage, you can drip them inside a TFSA or RRSP, sheltered (or at least deferred) from taxes. Be sure to ask your brokerage whether they honour any DRIP discounts as well, as some will give you the same discount off the market price for your synthetic DRIP as offered through the true DRIP.

There can be some fees associated with DRIPs, and you need to be aware of these before you start. In Canada almost every true DRIP is free once you’re set up. However, to enroll most companies require at least 1 share to be registered in your name, and the cost for this tends to range from $30-$50. On the flip side, most discount brokerages in Canada will do a synthetic DRIP for free. You simply need to phone in as ask them to DRIP your shares of Whatever Corp and they take care of the rest. The list of companies that brokerages offer DRIPs for can vary widely however, so you may wish to take this into consideration when choosing where to hold your accounts.

If you wish to true DRIP a US company it adds a whole new challenge. According to the US Securities and Exchange Commission any foreigner purchasing stocks must do so through a US bank or a foreign bank that has a branch located in the US. Don’t confuse this with a Canadian account that trades in US dollars. The account needs to actually be either physically in the US (opened at a US branch even if you do your banking online up here in Canada), or more conveniently for many of us, through an online US bank. Synthetic DRIPs for US companies can be handled in Canadian based accounts, but currency conversion fees will eat into your dividends, and this will happen on each DRIP transaction. If this seems too complicated you may decide simply to invest the dividends somewhere else.

The question of whether or not to bother with DRIPs is up to the individual investor, both in how much effort you want to put in, as well as how strongly you feel about your holdings. I’m a big fan of DRIPs (gotta love the set-it and forget-it style of investing!), but they may not be right for everyone.

There is a fair amount of work involved in true DRIPs, especially in setting them up. Application and anti-money laundering paperwork needs to be filled out and submitted for each company you plan to DRIP. True DRIPs are held in taxable accounts as well. Though they are taxed favorably in Canada (usually much lower than your marginal tax rate), if you have the room in a TFSA or RRSP you could shelter them there. This is exactly what I do – build my position as quickly as possible through true drips, then transfer them into my TFSA in order to shelter all future growth, and start a synthetic DRIP from there.

As I mentioned above, using a synthetic drip is much less hassle. Simply call up your brokerage and tell them you would like to drip every stock in your account. Assuming a synthetic drip is possible through your brokerage, and that the dividend amount is at least enough to buy 1 whole share, they will start the drip and you can sit back an watch the new shares roll in each quarter. There is really very little involved with synthetic DRIPs.

I was trying to come up with a reason why an investor would not want to DRIP their shares of a specific company, and I could only really see one: If you would like to do something else with the dividends, such as invest in a different company or product. The dividends are, of course yours to do with as you please and you could choose to use that money to invest in whatever else you like. You can even withdraw the cash to spend instead of investing (keeping in mind any penalties and tax considerations depending on the account you hold them in.) This is exactly what we Drippers will do when we retire – use the dividends as income.

My plan basically involves buying strong, solid companies that I’ll hold and build my position with for many years, hopefully into retirement. That means I’d rather use each dividend as efficiently as possible to buy more shares of the same company. Assuming I’ve chosen the right companies and they still fit within my investment plans, I’m going to want as many shares as possible and dripping (either true or synthetic) helps the whole process move along faster. For me dripping is a no-brainer, and quite a bit of fun to watch as my number of shares increases each quarter.

What about you? Do you DRIP every stock, pick and choose, or just let the cash roll in?

Happy Dripping!

Why I Stopped Diversifying. And Why You Should Too.

If you’ve already read tons of stock market reading materials, I’m sure you’ve already come across of the recommendation to diversify your portfolio. Invested in 10 to 20 great companies so that you’ll have a margin of safety. What do they mean by that?

Photo credit

If you’re invested in 20 companies, and one of them would screw up, you still have 19 left. That way, you protect your capital. It’s even written in the bible that you should diversify, because you can never tell what can happen. Great strategy, aye?

But why am I discouraging you from diversifying?

Warren Buffett once said, “Wide diversification is only required if investors do not understand what they are doing.”

I’m sure for most of you who read this for the first time would feel a bomb explode in your heart. That’s okay. We all had our days. As for me, I was never guilty of diversifying, BUT…But was guilty of being ignorant. As I’ve said, we ALL had our days.

In this post, I’ll share with you why I never diversified, and never looked back.

1K, 10K, 100K or 1M doesn’t make a difference.

I’d like you to think of the day when you were investing for the very first time. Maybe some of you have an initial capital of 25K, while most have 5K. With that in mind, I’d like to ask you two questions, specially to those who are doing EIP:

Diversify chart

How many companies did you buy when you started out?
How and why did you come up with that choice?

If I have to answer those questions: I invested in three companies, and I know they are the best of the best, that’s why I invested in them.

Most people do this:

They only have 5K so they invest only in the best companies out there. Let’s say, those were SMPH and MBT. Suddenly, when they already had 100K, their portfolio multiplied quicker than a gremlin on a rainy day.

This is my belief: SMPH and MBT are great companies when you had your 5K, and still remains great when you had your 100K. And would probably still be great when you will have your 1 million. When I earned 133% in one year, ALI was the only company in my portfolio.

Choose one: Invest your 500K in 10 crappy companies or in 2 of 3 blue chips? Warren Buffett, again once said, “You only have to make a few good choices in order to get rich.”

Save yourself from all the headache.

This varies from one person to another. In my whole investment career, I’ve only had at most 5 companies at a time in my portfolio. Why? Because if I go higher, I won’t be able to monitor them properly.

When I say monitor, I’m not referring to just looking at its current price, target price, trend, etc. That’s only half-baked monitoring, and won’t do for me. I read news, target profit, future projects, reported earnings, current challenges, etc (COL Financial provides these items everyday).

For those of you who can pull this off with 10+ companies in your portfolio, then I salute you! Maybe for some of you, this is the reason why you resorted in subscribing in the truly rich club. So that someone will just prompt you to either buy, sell or hold. Maybe. Just maybe.

Minimize, if not totally remove your risk.

You may not believe it, but yes, you can minimize your risk by not diversifying.
Imagine these companies in your portfolio:

JFC: Chinese business facing challenges.
CEB: Downgrading on negative airline industry outlook.
AP: More challenges seen in 2013.
EDC: More challenges ahead.
FGEN: Hydro plant to disappoint this year.
SMDC: Bloom to replace SMDC in PSEi
SCC: landslide could potentially disrupt mining operations.

While these companies face these challenges, they remain good companies with great long-term fundamentals. But can your fear handle it? When these news broke out, share prices dropped faster than you can say I’m going to sell!

Had you chosen your companies very carefully, you could have spared yourself with all the heart attacks.

Quality versus quantity.

This has been a never-ending debate, thus this topic does not need any more explanation. It’s a personal choice that I go for quality companies over quantity.

Why invest in SMDC if there’s SMPH or ALI?
Why invest in EW, SECB, PBB if there’s BPI, BDO and MBT?

In every sector, there’s always the bigger shark that just eats the rest for snack.

You never go wrong with quality. Besides, most beginners that I know go only for quantity because a stock is matunog. Can’t blame them, it’s easy to go with the crowd than against it. On second thought, it’s not that hard, isn’t it?

Lesson from my mother.

If I were to name my greatest mentor, it would be my mother. I learned not to diversify from her. Did you know that she only invested in one company? That would be her employer. Talk about confidence.

You see, my mom works in the finance department of a giant that have been in the business for more than 100 years. Being part of the finance dept, she had access to budgets, earnings, target profit and future projects. She knew what her employer can pull off. That gave her confidence.

She was able to do many things (which I will not mention in this post), and was able to help other people outside our circle because of that one investment.


Clearly, a non-diversified portfolio can also give you great benefits. And in my book, it has better benefits than a diversified portfolio. Since one has both advantages and disadvantages over the other, neither is superior. It still depends on your own strategy, goals and emotions.

What did I miss?

For those of you who don’t have a diversified portfolio like me, I’d like to know how you’re doing. Were there times that you’re influenced by the mob and jumped to another stock? How many companies do you have today?

If you have a diversified portfolio, are you doing it for the sake of “safety”. Is it worth it?
Do you have companies in your portfolio that you wish to dispose? What’s preventing you from doing it?

Did I fail to mention other benefits that a non-diversified portfolio might have?

How to Read a Stock Chart Like a Pro

Every time you tune into some TV channel specializing about the stock market, you must be overwhelmed by the amount of raw data they are showing to the viewers. The success in stock market depends on how well you can interpret and analyze the data, i.e. the stock charts. A stock chart tells all about the stock market. There are various types of charts such as candlestick charts, support and resistance, trend lines, OHL (open-high-low-close), point and figure and others which are viewable in different frames. One common thing about all charts is that the charts are either daily, weekly or monthly and always shows a pattern.Analysing stock market data

Stock Chart Types

Although there are different types of stock charts available, most charts display price and volume of stocks. Candlestick charts are one of the most common patterns used by Japanese people and became popular worldwide. Candlestick charts are used when you have a dataset that contains low, open, high or close values for each time period. The candlestick charts look like box either filled or hollow. Many traders consider candlestick charts more visually appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture of the price action of a stock. From the candlestick charts, a trader can easily get the relationship between the open and close value and the high and low value of a stock for a particular time frame. The open and close are considered the most vital information in the candlestick chart. As a general information, a hollow candlestick indicates buying pressure and filled candlestick indicates selling pressure of a stock.

Line graph analysis

Support and Resistance

In the stock market, support and resistance are two important values in the stock chart. Someone wants to invest in the stock market must understand the meaning of these two values thoroughly. Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. When the price declines towards the support level, the stock value goes very low. As a result, the buyer wants to buy more stock, but the seller is less inclined to sell. As the price reaches the support value, it is believed that demand will overcome supply and prevent the price from falling below support. Resistance is exactly opposite to the support. Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. As the stock price rises towards resistance value, the seller wants to sell stocks, but the buyer is less inclined to but due to high price. As the price reaches resistance value, it is believed that supply will overcome demand and prevent the price from rising above resistance.

Trend Lines

Out of all the technical jargons in the stock market, the trend line is the hottest topic among technical analyst and traders. A trend line is a chart that gives a quick understanding of the market from the uptrend and downtrend of the stock values. Trend line charts are the most important for a newcomer or a veteran in the stock market.

Different Stock Market Order Types Available in the Trading Industry

Advancements in technology have contributed to the changes in the trading industry. Most investors now rely on the online trading technology while buying and selling their stocks. Increased use of online brokers in the 21st century has made stock trading faster, cheaper and easier than ever before. The stock market prices keep fluctuating every day meaning that the investors should stay up to date with the current changes in the market. Therefore, Understanding Different Stock Market Order Types is essential in increasing profits from stocks sale.Stock-Market

Different Stock Market Order Types

Some investors would prefer trading on stocks using fixed prices while others do not. The investors also dictate terms that stockbrokers should follow during the trade to ensure maximum profit. The terms and instructions given to the brokers determine the ideal order type depending on the risks the investor is ready to take. Below is a detailed explanation of the most popular orders types:

1. Market Order

The stockbroker has the liberty to execute the trade at the prevailing price in the market. It is the fastest trading method since the buyer aims at getting the lowest available price while the seller’s focus is on the highest offer. Execution of the order is easy, but the price keeps fluctuating especially in volatile markets.

2. Limit Order

The investors using this order have control over the buying and selling prices of their stocks. A stockbroker can only execute a buying limit order only if the stock falls at the limit price or below and can only fill a selling limit order only at the specified price or above. The trader has complete control over the price of the orders unlike the market orders, which depends on the current market price. Remember that any limit order cancels after 180 days.

3. Stop Order

Stop order protect an investor from losses by combining the market order and the limit order. In this order type, the investor gives the stockbroker a particular price, which activates the order. The brokers then execute it as a market order on the future trades.Investment-Decisions

4. Stop Limit Order

The orders work the same way as the stop loss orders, but they become limit orders after activation instead of market orders. The order executes if someone is willing to trade at the specified prices of better prices.

5. Buy Stop Order

It is common with investors looking to protect their profits over a particular stock that they have sold at a lower price. The price for the order is higher than the market price for the buy stop order while the sell stop order usually has a stop price below the market prices.

Bottom Line

Market orders, limit orders, and stop-loss orders are the most common ones in trading. However, investors have additional orders to choose from while getting the ideal stock-orders types. Other types of stock orders you can consider getting include basket orders, day order, trailing stops, and valid till cancelled order. An investor should also consider doing research while getting an order by looking at its time and money saving capabilities as well as the risks involved.